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Posted by Jim McClaflin, EA, NTPI Fellow, CTRC

Innocent Spouse Rule

Innocent Spouse Rule

A spouse usually signs joint tax returns with the knowledge to face the due tax, penalties, and interest accompanying the tax return. According to the IRS (Internal Revenue Service), understatement or erroneous tax is held accountable to both parties involved.

After experiencing innocent spouse implication in illegal tax activities through assets, Uncle Sam decided to create a law called the innocent spouse rule. The rule protects a spouse and his or her assets from being frozen or seized due to a partner's faulty tax filing, or deliberate circumvention of the law. The rule covers married, separated or divorced spouses.

Not every spouse qualifies for this process. To be deemed qualified, the innocent spouse has to fulfill these requirements.

  • One spouse has misfiled a joint tax due to an error or deduction.

  • The other spouse was unaware of the error when the tax filing was signed and returned.

  • Every situation points out that it's unfair to charge the innocent spouse for the misfiled tax.

  • The innocent spouse relief is applied for two years of receiving the IRS tax levy.

 

An error is an omission or misrepresentation of any item on the tax record. The rule is only subject to tax amendment under this type of error and not spouse negligence to pay due tax.


Innocent Spouse Rule Options

If the innocent spouse rule does not apply in your case, then here are other ways to go about it.

Separation of liability relief: in this case, both parties pay the tax. The tax is equally split among the spouse. However, your divorce or separation has to be legally done, and you have to spend more than a year with your ex-spouse to qualify for this rule.


Equitable relief: this option is only available in states like Arizona, Idaho, Nevada, Wisconsin, etc.. The option is used by the innocent spouse with no joint return and living on community property. This case considers the income to be shared income, and you might get a refund if the tax return was reported in order but not paid.

Innocent Spouse Rule and Injured Spouse Rule

The two laws are a bit different. Innocent spouse rule holds who is responsible for the tax report, while the injured spouse rule allows the offended spouse to a portion belonging to him or her from the refunded tax in a joint tax return. Some refundable injured taxes include federal or local taxes, children or spouse taxes, or student loans.

How do I file for innocent spouse relief with the IRS?

If you are qualified for innocent spouse rule IRS Form 8857, there are some things you need to know:

  • The IRS will inform your spouse or ex-spouse if you are issued an innocent spouse rule form. This notification requests your spouse to provide valuable information regarding the case.  

  • The IRS will retrieve the tax, interest, and penalties from your partner or ex.

  • If a portion or full tax is already paid, the IRS will reverse only the cash payment made by you.

  • If a part of the interest, tax, and penalties does not qualify under the innocent spouse rule, both parties will split the portion.

  • Some taxes that do not qualify under the innocent spouse rule are payments made by individuals and some employment taxes.

 

IRS investigates the innocent spouse rule to figure out the nature of the error, educational background, participation in the misfiling of tax returns, and other factors associated with the error. 

The examination is conducted fairly by examining whether the tax error favored you or your spouse. As the case may be, if you're innocent of these accusations and are qualified for the form, you can request for an innocent spouse rule to vindicate your claim.


FOR MORE INFORMATION ON HOW JIM McCLAFLIN, EA, NTPI FELLOW, CTRC CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


THANKS FOR VISITING.

Jim McClaflin, EA, NTPI Fellow, CTRC
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